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Stock Ideas Investors Daily Edge Calling A Bottom Met With Mixed Reviews
Stock Ideas Investors Daily Edge Calling A Bottom Met With Mixed Reviews 
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Taipan Entry Point Above is the chart of a “cleantech” stock I recommended in the most recent issue of the Taipan newsletter. The company is a respected leader in a rapidly growing industry, with exciting technology and a $2 billion-plus market cap. (You can read more about it in today’s Taipan Daily, too… I’m just so excited about this opportunity, I don’t want anyone to miss it.) |
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| Calling A Bottom Met With Mixed Reviews |
| Friday, 24 October 2008 | ||||||||
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Rick Pendergraft My recent articles stating that I thought we were at or near a bottom were met with mixed views. One reader thought I was tempering my real thoughts in order to pacify my readers. I have been enjoying your column for quit a while now and find that you always seem to adhere to a more conservative leaning. I understand that position has a stronger gradational pull than stark reality and for the purposes of your column is probably better received than what would appear to be a gloom and doom offering. However, I can't help wondering if you do really believe that the market is "close to a bottom." In my totally untrained eye, I would look for a number of 5500 to 7200 DOW before considering a bottom. Since you are the one with the weekly column and I am one that reads it, I couldn't help wondering if you were inclined to be just a tiny bit more realistic for the sake of your reader’s best interest. I think that the one thing that we can all count on in this life is our Government. That is to say, we can always depend on them to make the wrong decision 100% of the time when it comes to our best interest. And that is why I ask this question of you. Those WEASELS will not abandon their current self-serving path until we put them at the end of a rope . . . and that takes time. I look forward to your next offerings. Jim L. Pensacola, Fl. Well Jim, as those who know me best would tell you, I shoot from the hip with my thoughts. If I think the economy is doomed I will tell you so. As far back as last September (Labor Day to be exact), I was talking about the rough times we were headed for in the US. Now that the market has fallen almost 40 percent in the past year, I think things are getting a little overdone on the selling side, just like they were getting overdone on the buying side a year ago. Just look at a chart of the Dow over the last two and a half years. Last October the Dow was extremely overbought. This October, the Dow is extremely oversold.
 But my thoughts on the market are based on more than just the chart. If you look at the sentiment indicators, bearish sentiment has jumped to extreme levels as well. Looking at Investors Intelligence readings, the bearish sentiment hit 54 percent among investment newsletters. This is the highest reading since December 1994. The bearish sentiment never reached this high during the bear market of 2000-2002. On the flip side, the bullish percentage dropped to its lowest reading since 1988. This extreme bearishness along with the extremely oversold levels suggests to me that we are due for a bounce. Let’s move on to the next reader email. Bob points out that it is difficult to have one plan for everyone. He also points out how difficult it is to find a good broker/financial planner. Rick, Solid advice. Everyone wants a simple 1, 2 & 3 plan. As you clearly demonstrated, very few can follow the classic case without some constraints and caveats. I will also add that from my experience, a lot of financial planners are very good at commissions but are not really well rounded sophisticated investors and can offer some very weak if not dead wrong advice due to a lack of knowledge or caring. Thanks for your service to those of us that are doing our best to look at this market and not get clobbered. Bob I couldn’t agree more Bob. I worked in the brokerage industry very early in my career and I found out very quickly that this wasn’t how I wanted to be involved in investing. Most of the brokers I worked with were great at selling products to clients, but very few were good investment advisors. There were a few that really studied the market and were consumed by understanding the market. The ones that were consumed by the market weren’t the best brokers (at least in the firm’s eyes). The top producers in the office were the best sales people. Moving to our next email, Woody wants to know my thoughts on Dollar Cost Averaging… Rick, I would be interested to hear your views on Dollar Cost Averaging as it applies to today’s market. Would you try to catch a dip with those funds you temporarily parked in a Money Market or would you purchase a little each week or month? Just give us your views on DCA. Thanks, Woody I have no problem with Dollar Cost Averaging. Most people are already doing this via their 401(k) plan, whether they know it or not. By adding to their retirement account every week, or two weeks, or monthly, they are using Dollar Cost Averaging. I don’t necessarily think you should double your dollar cost averaging by doing it with your separate investment account. I believe in actively managing my investment account by setting targets to take gains and by setting stop loss points that make sense. This brings me to a point I made on CNN radio the other day. The 401(k) has been a great retirement vehicle for individuals, but it has also increased the number of people participating in the market greatly. For better or for worse, more people are probably invested in the stock market today than at any time in history. And this is due to 401(k) plans. The individual investor has more of a passive role via mutual funds, but never the less, the number of individual investors involved in the market has increased greatly as a result of the 401(k) and this needs to factored in when you study sentiment. I have expressed many times before how you have to look at technical indicators, sentiment indicators, and fundamental indicators to be successful as an investor. Right now, the technicals suggest that a bounce is due as do the sentiment indicators, but the fundamentals are still a little dicey. Earnings have been less than stellar, but most people expected earnings to be down. Over the next few months, I look for a rally in the market and then I will reassess the situation when we enter the next earnings season in January. But you have to remain active in managing your account. The buy and hold days are over for now. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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